The discussion of the appropriate means to attain external balance arose as a result of the recurring problem of acute shortages of foreign exchange for many small, open, developing economies. Thus, as Findlay (1973) and Diamond (1978) contend, it is now widely held that the critical bottleneck...

This article presents a general equilibrium model capable of assessing the impact of foreign price shocks on the real side of the oil‐based developing economies. The theoretical model departs from previous work in this area at least in that (1) the model takes into account endogenous income...